Vrakas CPAs, Here Are Your Articles for Wednesday, September 26, 2018
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What's the Story on Tariffs?

 

A tariff is money collected at the border by a governing authority on goods entering or leaving a country; it's focused on a specified industry or product. A steel tariff on Canada, for example, is supposed to increase business for U.S. steel companies because Canadian steel mills will have to pay an import tax when the product arrives at the U.S. border.

The United States has recently imposed tariffs on products from other countries, which in theory would help U.S.-based producers, while possibly raising prices. Canada and other countries — China, Mexico and the European Union (EU) — have placed or have threatened to place retaliatory taxes on U.S. products. This may lead to a "trade war" as different countries try to top each other in defending themselves.

There are economic and emotional arguments on both sides as to whether a nation is better off when goods flow freely or when protection of local businesses is more important. Globally, though, tariffs have been close to their lowest levels, averaging around 2.9 percent, falling for decades due to free-trade agreements.

For now, tariffs are mainly impacting the companies selling and buying taxed goods — automobiles, tractors, appliances — everything made from metal (even nuts and bolts). But economists fear that, as with any tax, it will come back to the consumer as producers pass the costs onto the people who buy the finished products. Companies will look for other ways to cut costs, affecting jobs in the future.

As our largest trading partner, economists note that the EU has the economic influence to hurt U.S. consumers. Reasons given for adding tariffs include protecting intellectual property and limiting threats to national security. But the tit-for-tat aspect of tariffs becomes mutually harmful to all nations involved.

Tariffs, also called duties or levies, discourage imports by making them more expensive and reducing competitive pressure on domestic suppliers, allowing them to raise prices. But economists say trade restrictions make the economy less efficient.

The current round of tariffs is expected by economists to result in a modest drag on U.S. growth. U.S. companies are concerned about the impact of tariffs on their supply chains and input costs. Tariffs can be pulled if governments realize they're causing actual harm to the industry they're trying to protect.

Do tariffs destroy domestic jobs or protect them? While in the short term, the effect is to save jobs, in the long run, the opposite may happen. The president announced $12 billion in aid to help farmers affected by retaliation against U.S. soybeans and other agricultural goods. Now, other industries are calling for their share of funds as they are on the brink of closing plants. Tariffs are supposed to help our trade deficit and bring more money into the Treasury.

However, not all think that such aid is a solution, believing that targeted exclusion of certain key raw materials might be a better solution. Support for a given position is dependent heavily on geography, as some states are more economically dependent on imported materials than others are.

While tariffs have been a constant subject of news over the past several months, it's clear that they will continue to grab our attention in the coming months.

 
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